This weekend, financial and
government officials are furiously seeking a solution to the bankruptcy
of Lehman Brothers, and, I would suspect, Washington Mutual.
The financial crisis is now
officially at the dangerous stage, where any slight miscalculation or
misstatement could send the markets into crash mode. This deserves
your very highest attention.
SAN FRANCISCO (MarketWatch) — As U.S. Treasury officials made it clear the government will not bail out Lehman Bros., the Federal Reserve Bank of New York met Friday night with Wall Street executives in an effort to forestall the collapse of the investment firm and shore up rapidly weakening financial markets.
The New York Fed called the emergency meeting Friday evening with the heads of major financial institutions and the group reportedly plans to continue meeting throughout the weekend if necessary to come up with a plan to save the ailing Lehman Bros. and prevent further damage among financial companies.
The meeting appeared similar to one held a decade ago when the New York Fed pulled top Wall Street executives together to prevent the collapse of hedge fund Long-Term Capital Management, the Journal report noted.
I love the line in the last paragraph that “the meeting appeared similar to” the one held after the collapse of LTCM. Yeah, it’s similar because all the big banks are there at the table with the Fed, but it’s dissimilar in that this time the banks are insolvent.
In that way I suppose it’s not similar.
At any rate, this financial crisis is getting worse, not better, and we are not yet near bottom. I fully expect a major, systemic banking failure at some point before the end of the year. If this happens, expect the entire banking system to freeze up, the stock market to get shut down for a period, and for an enormous chunk of wealth to get evaporated. This is the “deflation” route.
The only way to forestall (and possibly prevent) this outcome will be for the Federal Reserve to open up its magic checkbook and start monetizing debt in earnest. This will be the “inflation” route.
Protecting one’s assets in this environment is going to prove to be especially challenging.
by kass47